Standing Committee A

[Mr. Edward O'Hara in the Chair]

Finance Bill

(Except clauses 1 to 3 and 16 to 53 and - schedules 4 to 11)

Clause 63 ordered to stand part of the Bill.

Schedule 15 - Enterprise investment scheme: amendments

Howard Flight: I beg to move amendment No. 24, in page 156, line 35 at end insert
`(and for these purposes an amount is significant in relation to the amount subscribed by an individual if it does not exceed 5 per cent. of the amount subscribed by them)'.
 The amendment arises from Government changes that start by being helpful in clarifying uncertainty about what is regarded as an insignificant return of value to an investor. However, the clarification itself contains an uncertainty in that it exempts value received below £1,000 or a level that is insignificant in relation to values subscribed without stating what the second test is. The amendment proposes the test of not exceeding 5 per cent. of the amount subscribed.

Melanie Johnson: The amendment seeks to make a change to measures introduced by the Bill that improve the way in which the enterprise investment scheme operates. They were introduced because the Government listened to representatives of users of the EIS and the changes have been warmly welcomed, some of them by the hon. Member for Arundel and South Downs (Mr. Flight).
 We intend to knock some of the sharp edges off the EIS ``value received'' rules that were introduced by the Conservative Government in 1994. We have provided a de minimis limit of £1,000 below which the ``value received'' rules will generally not apply. In addition, where the total amount is exceeded, the value can still be treated as ``insignificant'' if the amount is insignificant in relation to the amount that was subscribed for the shares in question. The amendment seeks to introduce a definition of ``insignificant'' as any amount up to 5 per cent. of the amount subscribed for the shares, and I shall explain why I am not happy about it. 
 The use of ``insignificant'' is not new in this context. The same wording is used in the corporate venturing scheme which was introduced last year and which has not caused any difficulties in practice. It would certainly not be appropriate to treat a 5 per cent. return of value as being ``insignificant'' in relation to the amount subscribed. That would mean that someone investing £100,000 for example, would be able to get a return of £5,000 without losing any relief. The hon. Gentleman's body language seems to indicate that he believes that that might cause problems. 
 The purpose of the £1,000 limit is to ease the compliance burden of the ``value received'' rules, so that small amounts of money can, in effect, be ignored provided they do not exceed £1,000 in total. Where a larger amount is returned, it would need to be very small in relation to the amount subscribed if it is to be treated as being an amount of insignificant value, and we do not expect many cases where that applies to arise in practice. 
 The current wording allows the facts and circumstances of any particular case to be taken into account in a way that a fixed percentage would not. The Inland Revenue will, of course, be prepared to issue guidance in the future, should it be needed, but that guidance should be based on experience, and not on hypothetical cases. 
 For the reasons I have given, I have no hesitation in asking the Committee to reject the amendments.

Howard Flight: May I ask the Minister to provide some useful guidelines on what ``insignificant'' means? It appears several times in paragraphs 20, 31 and 35 and leaves uncertainty, especially for those trying to decide whether they have a reporting obligation. While I appreciate that 5 per cent. does not really work, representations have been made by most of the accounting bodies to the effect that the current draft lacks clarity.

Melanie Johnson: The word ``insignificant'' is defined in the schedule as an amount that does not exceed £1,000, or
``if it does exceed £1,000, is insignificant in relation to the amount subscribed by the individual in question.''. 
There are caveats to prevent entitlements to receive value back and to aggregate more than one return of value. The point that I have already made is relevant to the hon. Gentleman's concern: the provision already operates in respect of the corporate venturing scheme and nobody has yet had any difficulty with it. Normally, discussion with the Inland Revenue would resolve any uncertainty. The Revenue stands ready to prepare guidance should it be needed, but there is no indication that it will.

Howard Flight: We know that £5,000 is not insignificant. Somewhere between £1,000 and £5,000 is involved. The corporate venturing scheme is new and, therefore, this has not been raised. However, it appears that we can look to the Revenue for some sort of guidance to save it being bothered by numerous applications about what the term means. We have made our point and I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Schedule 15 agreed to.

Clause 64 - Venture capital

Qn proposed, That the clause stand part of the Bill.

Michael Jack: The clause makes some useful improvements to the venture capital trust arrangements, and indeed to the corporate venturing scheme. I rise merely to tell the Economic Secretary that I was grateful during my Second Reading speech for the Paymaster General's kindness in agreeing to consider two points that I made in connection with both venture capital trusts and the enterprise investment scheme, which was the subject of an earlier clause, about the qualifying trades that could benefit from the provisions. The reason that I mention that in this context is that, sadly, land-based industries will not benefit from the provisions of clause 64, because currently they cannot benefit from venture capital trusts or enterprise investment schemes. In the context of the recovery of the agriculture industry and associated industries from the effects of foot and mouth disease there is a case for a temporary reprieve to consider the qualifying trades that could benefit from the clause and to lift the current restriction that prevents land-based industries from benefiting from those ways to bring new investment capital to their activities.
 I do not expect for one moment that the Economic Secretary will give me a definitive reply to that point; I merely ask her if she would be kind enough to convey to the Paymaster General my continuing interest in the matter—oh, the Paymaster General is present, I do apologise. Those two investment vehicles, with the changes proposed in the clause, could well be useful for the regeneration of agriculturally based businesses and businesses in the areas affected by foot and mouth.

Melanie Johnson: The hon. Gentleman has raised the point and my hon. Friend the Paymaster General has undertaken to bear it in mind. I should not want to cut across what were obviously happy exchanges of views on the Floor of the House. However, as the right hon. Gentleman mentioned foot and mouth in the context of CVS, it may be worthwhile my making one point. It is much the same point as I made earlier in the context of foot and mouth: CVS is not an appropriate vehicle as it targets only companies. Our figures show that fewer than 5 per cent. of livestock farms could potentially qualify. In terms of the farming community, not many people are likely to qualify for CVS because not many work on the basis of company organisation. The measure would not therefore particularly help farmers hit by foot and mouth.

Michael Jack: We are not considering farming as it is, but in the context of what may result. Under the English rural development plan, opportunities exist for all types of co-operative ventures that may not replicate the current situation. Many schemes might be appropriate in future.

Melanie Johnson: I appreciate the point that the right hon. Gentleman makes. There may be changes and we keep the list under review. If we needed to take account of significant developments, I assure him that we would want to do so. For the moment, those wishing to invest in more traditional rural industries, other than farming and market gardening, can do so under the existing laws. There is scope for some rural economy industries to be helped in that way and we can make sure that they are. CVS would not prevent such companies from being based on existing farms if appropriate. I will bear the right hon. Gentleman's points in mind.
 Question put and agreed to. 
 Clause 64 ordered to stand part of the Bill.

Schedule 16 - Venture capital

Howard Flight: I beg to move amendment No. 25, in page 169, line 20, after `(a)', insert `at least'.
 The amendment raises a brief drafting point. As drafted, the schedule provides that a figure of 80 per cent. has to be invested during the first 12 months. I am sure that the Government mean not that it should be exactly, but at least, 80 per cent. It would clearly not be practical to achieve precisely 80 per cent.—hence the amendment. I hope that the Government support it.

Melanie Johnson: I am grateful to the hon. Gentleman for his remarks. He says that it is just a small amendment, but it is a helpful one and we understand why it has been tabled. There are similar changes in schedules 15 and 16 to the EIS and CVS schemes, both of which use the phrase ``at least 80 per cent.'' While the existing drafting probably still allows the meaning to be construed as at least 80 per cent., it would be helpful to include the words ``at least''. It would therefore be instructive to avoid the possibility of confusion by having the same language used in regard to all the schemes.

Howard Flight: I thank the Minister for her comments. I am ``Shocked of Arundel''.
 Amendment agreed to.

Melanie Johnson: I beg to move amendment No. 6, in page 172, leave out lines 3 and 4 and insert—
 `(5) For sub-paragraph (4) of that paragraph (calculation of amounts of original and replacement value) substitute—
 ``(4) For the purposes of this paragraph, the amount of the replacement value is—'.

Edward O'Hara: With this it will be convenient to take amendment No. 26, in page 172, line 5, at beginning insert
`the amount of the replacement value is—'.

Melanie Johnson: The schedule keeps the VCT and CVS schemes in line with the enterprise investment scheme, following the changes made to it by schedule 15. All those schemes provide generous tax incentives for investment in the same sorts of small higher-risk companies. Paragraph 6 of the schedule amends the rules of the CVS that apply where an investor receives value from the company. A receipt of value would normally cause some or all of the investor's tax relief to be withdrawn, but that will not happen if it is returned without delay.
 Unfortunately, a minor drafting error in paragraph 6 removes some words in the existing legislation. We are grateful to the Institute of Chartered Accountants in England and Wales for alerting us to that unintended omission and are taking this opportunity to set things right. Amendment No. 6 merely reinstates the missing words, and I commend it to the Committee. Amendment No. 26 seeks to achieve the same result and would therefore result in a change that has already been made. I am grateful to the hon. Gentleman for ensuring this did not escape our intention and for the sake of expediency I ask him not press the amendment.

Howard Flight: As the Minister said, amendments Nos. 6 and 26 are precisely the same drafting amendments. We are more than to happy to take the Government's drafting and not to press amendment No. 26. I cannot resist pointing out that we got it in first. But never mind, the aim is achieved.
 Amendment agreed to. 
 Question proposed, That this schedule, as amended, be the 16th schedule to the Bill.

Howard Flight: The relaxations in the schedule are welcomed by the Opposition and by the industry generally. Will the changes in the definition of qualifying investment resolve the outstanding issue that we touched on a year ago in Committee of enabling one VCT to take over another VCT? VCTs were set up six or seven years ago.
 Sitting suspended for a Division in the House. 
 On resuming—

Howard Flight: Before the suspension, I was making two points. First, Opposition Members and the industry broadly welcome the measures in schedule 16. Secondly, I was inquiring whether the changes to the definition of qualifying investments would accommodate the consolidation of the venture capital industry such that one venture capital trust could take over another. I think that I raised the issue in Committee last year.
 The practical point is that venture capital trusts are five or six years old. Some will succeed, but some will not, and there is the inevitable commercial need for consolidation and for those that have not succeeded to be taken over and sorted out. As the definition stood, that was not possible. A share in a venture capital trust was not a qualifying investment, so one venture capital trust could not buy shares in another without losing its tax status. Does the legislation address that issue or do the Government intend to address it in other ways in due course?

Melanie Johnson: Following an amendment that the hon. Gentleman tabled last year, we asked the Inland Revenue to discuss with the VCT industry the issues arising when one VCT takes over or merges with another. It has since met an industry group several times and has made progress on identifying the changes that are needed to the rules. The Inland Revenue is still having discussions and will inform us of the outcome during the summer so that we can consider the most appropriate response. I assure the hon. Gentleman that his points are being taken seriously.

Howard Flight: I thank the Minister for those comments; I am glad that the issue is in hand.
 Question put and agreed to. 
 Schedule 16, as amended, agreed to. 
 Clause 65 ordered to stand part of the Bill.

Schedule 17 - Capital allowances: energy-saving plant and machinery

Question proposed, That this schedule be the Seventeenth schedule to the Bill.

Richard Ottaway: We welcome the introduction of energy-saving plant and machinery, because it is a sensible and environmentally acceptable idea. We support the Government's objectives, but I want to quiz the Minister on three points.
 First, several factors trigger permission to receive an allowance for an energy-saving plant. The first factor is that the plant must be of a description specified by Treasury order. On the face of it, that seems reasonable, but no one has any idea what such an order might describe as energy-saving or efficient equipment. We are aware that it may be made by reference to a technology list issued by the Secretary of State. Will the Minister give me guidance on that?

Melanie Johnson: A list has already been published on the website, which I believe the industry has found helpful.

Richard Ottaway: The Minister scores a hit. I was unaware of that list, as were those advising me.
 The second point is that the 
 ``Treasury may by order provide that'' 
no allowance can be claimed 
``unless a relevant certificate of energy efficiency is in force.'' 
The important word is ``may''. Does the Treasury intend to exercise that discretion? 
 My third point relates to the issuing of energy efficiency certificates. They are issued by the Secretary of State or an authorised person in England, by Scottish Ministers in Scotland, by the National Assembly in Wales, and by the Department of Enterprise, Trade and Investment in Northern Ireland. That sounds like a recipe for confusion. We are aware of the Government's objectives on devolution and we agree to differ on that, but we could end up with different criteria, themes and structures. What would happen if a large company with equipment in England moves it to Scotland? Would the company have to get a certificate in both regions? There is understandable concern, so will the Minister clarify those points?

Michael Jack: I have a number of points that reflect the representations that have been sent to Committee members. Before I move to those, will the Minister explain paragraph 2? It contains new section 45A, which says:
 ``Expenditure is first-year qualifying expenditure if...it is expenditure on energy-saving plant or machinery that is unused and not second-hand.''
 What happens if someone buys a piece of demonstration equipment? It might have been used to demonstrate how the energy-saving equipment operates in a manner that is compatible with the purchaser's facilities. However, the equipment may not be second-hand in that it has not passed from the manufacturer to a purchaser. Given that there may well be new and novel equipment on the list to which my hon. Friend referred, it would help to know what qualifies as first-year expenditure. In my experience in the horticultural industry many years before becoming a Member, manufacturers would often bring some piece of novel technology for growers to try that might prove to be sufficiently effective that they decided to buy it. I am grateful that the legislation is in plain English, which enables me to understand it, as this is the first time that we have had the chance of debating a piece of legislation that has been subject to the capital law re-write exercise, which I am delighted to see. 
 With regard to proposed new section 45A(1)(c) of the Capital Allowances Act 2001, the Chartered Institute of Taxation states: 
 ``We note that lessors are to be excluded under new s 45A(1)(c) of the CAA 2001.'' 
It makes the reasonable point that 
 ``As long as energy-saving plant or machinery is being provided and allowances are given only once, it should not matter whether they go to the user or to a lessor.'' 
If its assumption is correct, that worries me, because it could be that energy-saving equipment may be the subject of a lease arrangement. I cannot believe that, if the Government wish people to have a high uptake of that type of equipment, they would want to exclude the use of the allowances by those providing the facility by a leased mechanism. Can the Economic Secretary clarify that point? 
 My hon. Friend the Member for Croydon, South (Mr. Ottaway) rightly teased from the Economic Secretary the point that the list, of which I understand the authors are the energy and environment best practice division of the DETR, is indeed to be published on a website, but nowhere else. I appreciate that there is an assumption that all businesses now have access to the web, but what about embryo businesses that may have some difficulty in that respect? I am equally interested to know how people will know where to find the information. Will the Government, in the great spending splurge on advertising, use some of that money to try to advise people on where they can find the information? 
 I move on to representations received from the Institute of Chartered Accountants on the matter. Interestingly, referring to proposed new section 45B(4), it says that the certificate will be granted not to the taxpayer, but to the manufacturer of the equipment. That worries me. To save me reading out large amounts of text, will the Economic Secretary describe the processes to be gone through to ensure that, when a manufacturer receives the certificate, there can be no doubt that the subsequent machinery will qualify. Someone may unwittingly decide that their machinery is likely to qualify for the certificate, only subsequently to discover that there is some point of difference between the DETR and the manufacturer. The problem then arises of retrospective withdrawal of the allowance. It may be that that has been carefully thought through, and that the certificate would have to be provided ahead of any transaction. However, to avoid doubt, will the Economic Secretary address the issue? 
 How will the certification process operate in the context of someone who buys a piece of machinery with a certificate, but finds that it has to be modified in some way to fit into the workplace. Sometimes the dimensions given in the manufacturer's catalogue do not correspond to the actual machinery, so that it does not fit into the workplace. Does a modification to the equipment in some way invalidate the certificate? These are practical problems, and those who would seek assistance under this part of the Bill would like to know whether the original certificate also covers modification. 
 There is some debate about whether proposed new section 45C is sufficiently clear, and the Chartered Institute of Taxation makes the point that, where one has a mixture of approved and non-approved equipment, there may well have to be some form of apportionment in terms of the relevant capital allowances. The institute's representation states: 
 ``In that event, we would expect the normal apportionment rule in section 562(3) of the Capital Allowances Act 2001 would need to apply. However, new section 45C(5) excludes the operation of section 562(3) in all cases where there both approved and non-approved components.'' 
Now, this is the kind of nitty gritty problem that needs to be resolved before the schedule comes into operation, and I should be most grateful for the Economic Secretary's enlightenment on these representations.

John Burnett: This is my first opportunity to welcome you to the Chair, Mr. O'Hara, although I have been fortunate enough to serve under your chairmanship before.
 I rise to endorse the points made by the right hon. Member for Fylde (Mr. Jack). I, too, have received representations on the Bill from the Chartered Institute of Taxation and I know from past experience that many purchasers of plant and equipment prefer, for cash-flow reasons, to buy through leasing or hire purchase. The Government are pursuing the laudable aim of encouraging the purchase of energy-saving plant and machinery, but why are they excluding lessors from that? The object of the exercise is to get as much energy-saving plant and equipment into use in businesses and companies throughout the country, so I look forward to hearing a compelling explanation of why lessors are excluded.

Melanie Johnson: The energy technologies list sets out qualifying technologies and products, and was issued by the Department of the Environment, Transport and the Regions on 1 April. It is available on the DETR website, as I said in response to the hon. Member for Croydon, South, and it is also published—hard copies are available from the DETR's energy and environment hotline. I am sure that the same problems exist in locating something whether it is on a website or in hard copy. Until one knows that it exists, one does not know to look for it. That is also a problem with signposts, but that is beside the point. It makes no difference which form is used.
 On the question of whether the certificates can be issued by the devolved administrations, responsibility for some environmental technologies has been transferred to the devolved assemblies. However, that does not include responsibility for the technologies currently included in the scheme, and, in particular, it does not include responsibility for combined heat and power technology. That is the only kind of technology that currently requires a certificate of energy efficiency. The schedule caters for future cases in which responsibility for environmental technology included in the technology list has been transferred to the devolved administrations, which would also issue certificates of energy efficiency.

Michael Jack: Let us say, for example, that a piece of equipment was approved in Scotland, then moved to England, but came under the unified tax jurisdiction. How would the allowance operate if the piece of equipment had not been certified in England?

Melanie Johnson: My understanding is that, at the moment, certificates are issued centrally, so the right hon. Gentleman's point is hypothetical. The DETR will delegate it to the combined heat and power quality assurance programme. That is how the issuing of certificates is dealt with. I appreciate that the right hon. Gentleman's point might need to be borne in mind in future, and I shall write to him on the subject. The energy-saving criteria will apply nationwide, so there should not be any marked difference between decisions, even though they are not being made centrally.
 A modified design can be re-certified if the new design still meets the criteria. The point made about the modification of equipment to fit in with other equipment, perhaps when it arrives on site, can be tackled in that way.

Michael Jack: How will that information be communicated to taxpayers, so that someone does not unwittingly buy a certified piece of equipment, modify it and forget to re-certify it? Will people be given guidance?

Melanie Johnson: I do not know exactly what form of communication there will be, but I shall write to the right hon. Gentleman on the details later.
 The retrospective withdrawal of certificates was referred to. Products on the product list are not covered by the special rules concerning the certificates of energy efficiency, and can be given to the taxpayer. The certificates are used only for technologies specifically designed for the taxpayer's business, and the energy savings depend on the design. Combined heat and power is the only technology for which a certificate is needed. A certificate can rightly be withdrawn if, for example, a combined heat and power installation is not built according to the certified design. Obviously, people must discharge some criteria if they are expected to do so. 
 The energy efficiency of a combined heat and power installation can be measured from its design, and the certificates can then be issued at the design stage. They will certify that the energy efficiency standards required for the scheme are met, and the purchaser should thus be certain that the installation can qualify for 100 per cent. allowances before he makes the investment. 
 Some hon. Members spoke about leasing arrangements and the exclusion of leases. First-year capital allowances, such as given by the scheme, aim to encourage targeted capital investment by businesses. They help them to overcome the cash-flow disadvantages that they face when they make up-front investments out of profits after tax. They also enable businesses to receive tax relief earlier than would otherwise be the case. Businesses that lease assets do not suffer the same disadvantage, and can claim the full tax relief on their lease payments during the term of the lease. There is a marked difference between the profile and the nature of the leasing arrangements, hence the exclusion.

Michael Jack: Can the process of leasing not be an aid to the cash flow of a business? With it, a business need not put a capital sum up front, albeit one that is assisted by the capital allowance that the Minister has outlined? If the objective is a high uptake of energy-saving equipment, does it matter how the initial purchase is funded?

Melanie Johnson: I have just made the point that we are trying to ensure, by the use of first-year capital allowances, that we overcome the difficulties of the cash-flow disadvantage for those not leasing. The up-front investments have to be made out of profits after tax, but that is not the case for leasing.

John Burnett: I think that the Minister is explaining that the payments that lessees make—the lease payments—are tax deductible in toto. It would help lessees greatly if the lessor company received a capital allowance, as the lease payments would be diminished by the tax saving.

Melanie Johnson: Energy service providers can claim 100 per cent. allowances on their spending only on qualifying technology. As I said, such equipment is not for leasing. It is equipment that the providers are contracted to install and operate on clients' premises as part of a comprehensive energy management agreement to achieve energy savings or energy efficiencies. The energy-saving services provided in such cases are different from normal commercial leasing arrangements. Unlike usual lessors, the energy-saving service companies are responsible for the day-to-day operation of the equipment. The difference is that the energy-saving service providers do not operate the same arrangements.

Michael Jack: I am struggling to follow the logic of the Economic Secretary's argument. If I understand it correctly, her argument is that, because the equipment might be provided by an energy service company—perhaps a company that has entered into an agreement with the company to which the service is being provided, in order to share the energy savings—there might, in her judgment, not be a case for the energy service company to receive the 100 per cent. allowance.
 I come back to the point that I made earlier, that the objective is surely to achieve a high uptake of the energy-saving systems. As the hon. Member for Torridge and West Devon (Mr. Burnett) said, it may be to the advantage of the company to use a leasing arrangement to get hold of the equipment because of the cash flow advantages. However, there can be only one capital allowance, and it can be used only once. If it is used once by the leasing company ultimately to reduce the cost to the user of the equipment, as the hon. Gentleman said, does it matter that it is not the company or the principal who claims the allowance but a leasing organisation? 
 I do not know whether there are any financial implications for allowing only the company to claim the allowance rather than a leasing company, but it throws into question the raison d'etre of leasing. I should be grateful if the Economic Secretary would expand a little on that. I do not understand why such discrimination has crept into the legislation. 
 The other point that the hon. Lady did not cover concerned proposed new section 45A and what is unused and what is second-hand. An answer would help the industry.

Richard Ottaway: My right hon. Friend makes a strong point about leasing. Indeed, it is mentioned also in the next schedule.
 I return to the issuing of certificates of energy efficiency. The Minister said that they were being be issued centrally, but the schedule does not provide for that. Proposed new section 45B(3)(b) states that 
``in the case of plant of machinery used or for use in Scotland'' 
the certificate is issued by Scottish Ministers. There is no provision for it to be issued centrally. The schedule makes it clear that certificates will be issued in Scotland under criteria decided by Scottish Ministers, and with a fee structure imposed by them. It is not good enough for the Minister to say that it is not so. The truth is that what the Bill provides is different from what the Minister is telling us.

John Burnett: I remind the Minister that the rental costs of leasing agreements of qualifying plant and machinery are invariably deductible, if the equipment is qualifying equipment for business purposes, either against the corporation tax profits of the business or against the income tax paid on the profits of sole proprietorships or partnerships. That deduction is made in full. Will the Economic Secretary answer the central thrust of the question that the right hon. Member for Fylde and I asked? Why will the lessor company—the acquirer—not be entitled to such laudable relief for energy-saving machinery?

Richard Ottaway: Is not the point about leasing that the lessee derives some benefit from leasing? If that benefit is 50 per cent. and we add 100 per cent. allowances on top, the lessee will receive 150 per cent. I would understand that. Will the Minister confirm that that is the thinking?

Melanie Johnson: I shall go over the devolution point once more, although I shall not say any more than I did before. The schedule provides for the certificates to be issued by the Secretary of State or—as an alternative, not a mandatory requirement—by the devolved assemblies. All the bodies will use the same criteria, in any event.

Richard Ottaway: The schedule does not use the word ``or''. Perhaps an amendment is required to add it at the end of proposed new section 45B(3)(a). The Minister might like to return to that on Report.

Melanie Johnson: I shall bear that in mind, and if we discover problems with the drafting, we will be grateful for the hon. Gentleman's support in dealing with them on Report.
 I forgot to talk about second-hand equipment being used for demonstration. Demonstration equipment would not be treated as second-hand. That meets the demands that the right hon. Member for Fylde sketched out, drawn from his life before he entered the House. 
 Several Opposition Members made another point. The provision is designed to help users in the industry to adapt to the levy, to be as energy efficient as they can, and to contribute as much as they can. It was alleged that to give lessors allowances could help lessees' payments. What is important is energy-saving equipment, and the aim of the allowances is to help capital investment in energy-saving plant by the users of the equipment. That is the point. They are not designed to help more widely.

Michael Jack: Is there a difference in definition between the user of a piece of equipment that he has bought outright, and the user who leases it?

Melanie Johnson: I have just answered that question by pointing out that the focus of the policy is to help those who use equipment in the industry to adapt. Those going through leasing arrangements do not make a capital investment, so they do not meet the criteria for the scheme.

John Burnett: If the aim of the policy is to encourage the purchase and use of energy-saving plant and machinery, why exclude the many assets—I cannot give a percentage, but let us say half the total—that will be purchased on hire purchase or lease?

Melanie Johnson: I have already explained why we are not doing that. There is not much to be gained by my repeating the reason, probably ad nauseam. The scheme is designed to support the costs for those who have to make up-front capital payments to invest in equipment. Leasing, which has other forms of financial structure, does not require the same pattern of investment and will be helped in a variety of other ways through the tax system. It does not need the same assistance as capital investment by the companies and businesses that we are trying to help with the scheme. That is why leasing arrangements are excluded.

Oliver Letwin: Is the Economic Secretary talking about tax-based leasing? Does she mean to exclude it specifically from the provisions?

Melanie Johnson: What I am talking about is what we have been talking about all along. The hon. Gentleman is drawing me into a conversation that he was having with the hon. Member for Croydon, South. Assets for leasing are excluded.

Michael Jack: The Economic Secretary seemed at one point to challenge the idea of using of any kind of capital allowance structure in the context of leasing. She almost gave the impression that virtuous investment—in this context, for example, energy-saving combined heat and power systems—is good if one puts 100 per cent. of one's own money up front, but bad if one finances it by any other mechanism. Companies are concerned about their outgoings. A brand new start-up company in an energy-intensive business might not, in the first instance, have any profits against which it could use the capital allowance—the subject of the schedule—because it might take some years to build up enough profitability to take advantage of the scheme. However, in the context of leasing, if the capital cost of the energy-saving equipment could be lowered, so giving companies that lease such capital allowances would seem to be an advantage.

John Burnett: It was laudable that the Economic Secretary referred to cash flow. Does the right hon. Gentleman agree with me that there can be no greater assistance with cash flow than for the company, individual or business that is the lessee to be able to pay significantly lower lease charges or rent, while the lessor receives a 100 per cent. capital allowance?

Michael Jack: The hon. Gentleman, who has considerable experience in these matters, demonstrates the purpose of leasing and the usefulness of transferring the capital allowance from the user to the leasing company, which can use it to reduce the charge for the equipment to the person who leases it. I thought that that was the purpose of capital allowances in the context of lease arrangements. To make an artificial distinction is illogical. If the objective is to have a high take-up of energy-saving schemes, does it matter how they are financed? The fact that lessors are excluded seems to militate against the start-up company that may not have any profits in the first year against which to claim the 100 per cent. capital allowance. A lease arrangement might therefore be entirely to the advantage of that company, and of the Government, because it would achieve the energy-saving objective.
 I should be grateful if the Economic Secretary would have one further go at clarifying this. Otherwise, it will be on the record that the Government cannot explain why an important element of business finance cannot be used to further their energy-saving objectives.

Melanie Johnson: I am happy to make one comment in response to the right hon. Gentleman. First, there is a clear distinction between capital investment and leasing. It is not a fancy distinction; it is made in 101 other contexts. Secondly—

John Burnett: Will the Minister give way on that point?

Melanie Johnson: I am trying to respond. We are not making progress. First, there is a clear distinction. Secondly, Opposition Members may find it difficult to accept the fact, but we want to target the scheme. I know that I am not allowed to return to this morning's debate, but I wish to refer to it. The right hon. Gentleman made a point about virtue and said that some things are regarded as virtues and others are not. That is not the case; the Bill is not about virtues. It is about focusing, targeting our actions and responding in an appropriate manner to incentivise and help certain groups.
 In this case, capital investment requires up-front investment and does not have the same advantages. Obviously, leasing has a different pattern of arrangements. It is for that reason that we have focused on it and devised the scheme in the way that we have. I appreciate that our decisions might not be the same as those that the right hon. Gentleman would make if he were in Government, but he is not in Government, and we have made those decisions.

Michael Jack: I forget whether I am in the Cabinet. I am a humble Member of Her Majesty's Opposition, but I receive regular representations from the Finance and Leasing Association, which goes out of its way to emphasise the contribution that it makes to help capital investment in business.

Edward O'Hara: Order. I see out of the corner of my eye certain literature that should not be read in Committee.

Peter Luff: I apologise, Mr. O'Hara, but this is a piece of mail that I received from the Labour party, not a newspaper.

Edward O'Hara: Order. It is literature that is not germane to the business of the Committee.

Michael Jack: An interesting observation came to mind during that helpful interregnum. If a company were running a fleet of leased cars and decided that it wanted to take advantage of the new regimes that we discussed earlier in the Bill, it might choose a more environmentally efficient fleet of cars by virtue of leasing arrangements. Those arrangements would benefit from the transfer of the capital allowance to the lessor organisation. The objective of diminished environmental outputs from motor vehicles would be assisted by the leasing facility that the Government are happy to put a tick beside, but the Economic Secretary says that we are focusing—that is the word that she used. I want to examine the word ``focusing'' for a moment. We are focusing on those companies that are in the fortunate position of having enough money to buy a piece of energy-saving equipment. They are making a profit and can, therefore, use all of the capital allowance under the schedule at one fell swoop.
 However, the Economic Secretary is aware that many parts of British manufacturing industry are showing the opposite characteristics. They are making a loss and struggling to stay in business. They might want to deal with the impact on their businesses of the climate change levy by purchasing energy-saving equipment, but they might need to spread the purchase over time through hire purchase. That was the term used by the hon. Member for Torridge and West Devon; leasing is the more modern terminology for such an arrangement. Discrimination has crept in: unless a company is an up-front, 100 per cent. purchaser, it will not receive an allowance from the Government for acquiring energy-saving equipment. 
 I do not expect that the Economic Secretary will bother to reply to those points. We have now teased out from the Government the fact that there is discrimination against those who want to use lease finance. I hope that the Finance and Leasing Association will read these proceedings and correspond with the Economic Secretary, because they might do a better job of persuading the Government to re-examine the issue than I have this afternoon.

John Burnett: I exhort the Economic Secretary to think again on this. The businesses that will be penalised by excluding leasing, hire purchase and all those arrangements are small businesses with a low cash flow. They could be significantly assisted if the Treasury took on board the various points that we have made. The established, well-heeled companies will not be prejudiced by the arrangements. They will be helped to some extent, but let us help the smaller man and the new businesses.
 Question put and agreed to. 
 Schedule 17 agreed to. 
 Clause 66 ordered to stand part of the Bill.

Schedule 18 - Capital allowances: fixtures provided in connection with energy management services

Question proposed, That this schedule be the Eighteenth schedule to the Bill.

Oliver Letwin: I declare an interest. For once I may have a genuine interest here although I shall argue against it. I listened attentively to my right hon. Friend the Member for Fylde and to the hon. Member for Torridge and West Devon talking about leasing, which is in part the subject of the schedule. New section 180A(e)(i) does all the damage. I hope that the Committee will bear with me. That is really to say that I hope that you, Mr O'Hara, and the Minister will bear with me—others can gently go to sleep—as I try to explain what I think the problem is.

David Taylor: On a point of order, Mr. O'Hara. The hon. Member for West Dorset (Mr. Letwin) referred in general terms to an interest. He has not given any details to the Committee.

Oliver Letwin: That is easily answered, Mr. O'Hara, if you will allow me. It is the declaration in the Register of Members' Interests. I am a director of a merchant bank. It does not engage in leasing and I am about to make an argument against the interests of the banking sector as a whole.
 I shall try to explain to the Economic Secretary what has caused the problem and why it is a problem, from the point of view of the Government rather than the Opposition. I do not expect the Economic Secretary to answer now, but I hope that the Government will later have the opportunity to think about it and decide whether they would like to make a change. 
 I understand why the exception for leasing that I mentioned is in the Bill. The Government were aware of how tax-based leasing operates. A commercial bank with profits shields those profits by buying a piece of machinery, against which it can count writing down and answers. It then leases that machinery on to a company which, as my right hon. Friend rightly said, has not got profits and does not buy the machinery on balance sheet but sets up, for example, a project finance vehicle to take on the item in question. Under those circumstances the gain of the writing down allowances is split 50:50 between the bank or leasing finance company that has bought the machinery and which directly obtains the writing down allowances to set off against its profits from the Inland Revenue and the project company that has originated the transaction. 
 If the new and generous 100 per cent. allowance for energy intensive machinery were introduced and if it were allowed for leasing companies, in other words if proposed new section 180A (e)(i), were removed, half the benefit would go to the companies that the Economic Secretary is trying to induce to engage in energy-intensive machinery acquisition. The other half would go to the banks and finance leasing companies, which she does not want to benefit. I can understand that. There is no reason why the Government should arrange matters so that there is a large uncovenanted bonus for commercial banks and finance leasing companies. I think that that is why the item is included in the Bill. 
 As my right hon. Friend and the hon. Member for Torridge and West Devon rightly exposed, however, the result of the manoeuvre is, in the Economic Secretary's ironic phrase, to target the 100 per cent. allowance at the wrong target. For the reasons that I have given, if she pursues the current version of the legislation, large rich companies with high profits will use the allowance, because they can buy the machinery on the balance sheet and set the allowance off against their profits. 
 However, small nascent companies, which have to engage in project financing, will be unable to do that. The point about a project finance vehicle is that it is a single machinery vehicle set up to buy a specific piece of plant. When it buys the plant, it has no revenues, but receives them later, after it has started operating the plant. It has no profits, so it cannot use the 100 per cent. allowance. It must roll it over and use it later. The current value of doing that is very much reduced. In many circumstances, it would probably still make sense for such a company to use ordinary writing-down allowances and lease the machinery as before. 
 As I have said, I understand the Economic Secretary's reasons, but the policy has been so designed that it will, mistakenly, induce large rich companies, which probably do not need the incentive, to engage in energy-saving investment, while not inducing smaller poorer companies to do so. I should have thought that the Government's admirable aim was to do the reverse. 
 If the drafting and the cause of the problem are as I have described, the remedy is straightforward, so I hope that the Government will go away and think about it. The drafting should ensure that the part of the advantage of the 100 per cent. allowance that accrues not to the company engaging in the investment, but to the finance company or bank providing the leasing, does not accrue. There should be no additional advantage to that company or bank over and above the advantage that it would have with normal writing-down allowances. It cannot be beyond the wit of man to redraft the provision to have that effect. I do not say that that will be simple. In fact, I can gesture mentally towards its being quite complicated—but at least the effect would be rational as opposed to irrational. 
 That said, this is a relieving measure, so the fact that it will not do much good in its current form, and would do rather more good in another, does not lead me to jump up and down on my pogo stick. I pray that the Economic Secretary will not take all that as a great attack on the Government. I am merely making a genuinely helpful suggestion about how the legislation could be improved so as to achieve what I think the Committee agrees would be a good effect. It is pretty clear that the current drafting does not achieve that.

Melanie Johnson: I have listened carefully to the hon. Gentleman, but he is rather premature in making a number of assumptions. Were people to follow them, they might reach the same conclusion, but the question is whether all his assumptions are correct. That raises the question of experience, which we will gain as things roll forward. I still feel confident that we have got the provision right, but we will continue to consider matters and see how they progress in time. If the hon. Gentleman is proved right, we will consider whether there is an appropriate response. Currently, however, I am confident that what we are doing is along the right lines.
 Question put and agreed to. 
 Schedule 18 agreed to. 
 Clause 67 ordered to stand part of the Bill.

Schedule 19 - Capital allowances: conversion of parts of business premises into flats

Question proposed, That this schedule be the Nineteenth schedule to the Bill.

Richard Ottaway: I should be grateful if the Paymaster General would assist the Committee on a few points. The schedule relates to the conversion of parts of business premises into flats. Obviously, there will be debate about what sort of business premises and what sort of flats. It would help me if the Paymaster General would answer one or two questions.
 First, in chapter 3, ``Qualifying buildings and qualifying flats'', the schedule states: 
``the building must have more than 4 storeys above the ground floor''. 
Obviously, the figure must be fixed somewhere, but why at four storeys, not six or eight? Why does it specify high rise? There is obviously a strategic objective, which is laudable, to try to get more accommodation. Secondly, the building must have been constructed before 1 January 1980. Why do we need such a limit? 
 On qualifying flats, proposed new section 393D(1)(c) states: 
``the flat must be held for the purpose of short-term letting.'' 
As I understand it, short-term letting means a lease of fewer than five years—[Interruption.] The Paymaster General says seven years. What happens at the end of the seven years? Must the tenants be changed? The Minister has that at her fingertips, I am glad to say, and I look forward to hearing from her. I have only two further points to make, which she may want to take as a job lot at the end. 
 I now come to the difficult question of high-value flats. In deciding what is a high-value flat, notional rent is based on a furnished flat. We know that there is growing use of unfurnished flats. What happens if flats are unfurnished? Why do we have to distinguish between the two? Why not include unfurnished flats as well? 
 My penultimate point is that the valuation does not include other payments. Has the Paymaster General dealt with the question of service charges? In some flats, service charges are a high component of their value; in some they are minimal. None the less, that is an important question. Finally, the notional rent limits table is moderately crude. The Paymaster General represents a Bristol constituency where flats have a certain value; equivalent flats in less salubrious parts of Great Britain attract a lower value. I know that the table distinguishes between flats in Greater London and elsewhere. Would not it be more subtle also to include a regional variation?

Michael Jack: In the Budget press releases the measures in the schedule are triumphantly described as
``100 per cent. capital allowances to cover the costs of providing flats over commercial premises for letting to help bring life back in to Britain's high-streets.'' 
Those are three lines of total clarity, yet what we have in the schedule is pages of nit-picking detail. Will the Paymaster General explain a bit about the thinking that that went into that? 
 My hon. Friend the Member for Croydon, South made an important point about the number of storeys in buildings. In some older buildings, it is not always easy to identify what constitutes the ground floor. Many older buildings contain a floor, part of which is below ground and part above it, so how shall we determine what the ground floor is? Will a code of guidance be issued, so that those who embark on the labyrinthine reading of the schedule to discover whether they are properly qualified will know in greater detail what the provision is all about? 
 My eye was then taken by new section 393D, which gives insight into the detail. It states: 
``the flat must not have more than 4 rooms''. 
That is intriguing because the schedule provides no definition of a room. The census, which the Economic Secretary was responsible for getting to at least some of us on time, contains a definition of what constitutes a room. Moreover, what does not count as a room. Does the Bill work on the census definition or another one? That is the sort of detail that should—or, perhaps more critically, should not—be defined. 
 We all want this laudable attempt to bring life back to the high streets of Britain to succeed. What an indictment that life has been snuffed out in the high streets of so many Labour-controlled authorities, but I shall not detain the Committee with a long discourse on my experiences in Newcastle upon Tyne. 
 Why, in all seriousness, must a flat be restricted to no more than four rooms? New section 393D(f) further stipulates: 
``the flat must not be a high value flat''. 
At least we have some definition in that respect, but if someone is trying to regenerate the inner cities of our country, what is the value of specifying the number of rooms and the worth of the flat? It is unnecessary.

Frank Roy: If the right hon. Gentleman looks at the top of page 181 of the Bill, he will find a definition of a room which will help him.

Michael Jack: I am always willing to be educated, but there is no definition in the part of the Bill that I am considering. Why is a flat defined as four rooms? I accept that it states that
``any kitchen or bathroom, and . . . any closet, cloakroom . . . not exceeding 5 square metres'' 
do not count, so we know which rooms are missed out, but we still have no definition of a room.

Harry Barnes: It sounds as if it is exactly the same as the definition in the census, which specifies what should be excluded. That is precisely what the right hon. Gentleman asked for.

Michael Jack: ``It sounds as if'' is a good description. If the Government are trying to encourage the development of properties in the high street, the provisions contain an enormous amount of unnecessary detail.
 I was helpfully referred by the hon. Member for Motherwell and Wishaw (Mr. Roy) to the reference to 
``any closet, cloakroom or hallway not exceeding 5 square metres'', 
but it may be physically impossible for a building that is adequate for regeneration to meet that specific criterion. Why has that figure been adopted? It is another example of unnecessary detail, which will inhibit the work that is required under the proposal. 
 Why is there no provision in the schedule for allowances to be transferred to subsequent purchasers, by reference either to the price that is paid or to the unrelieved residue of the vendor's expenditure? That is an important technical point but has not been dealt with. Finally, I note that new section 393E(6) says that the tables of notional rents can be amended by Treasury regulations. Will the Minister clarify what the review period will be between the Bill being enacted and the reviews taking place? The property market can be extremely volatile and, for greater certainty, people will want to know when the reviews are likely to occur.

Dawn Primarolo: I implore the right hon. Member for Fylde to read the entire schedule before trying to find problems in it. This is a modest proposal, which fits into the package of measures included in the Bill and, particularly, with the recommendations made by the Rogers report. From 1992 to 1995, the Conservative Government, by way of a grant scheme, followed the same objectives, using many of the same criteria after advice from the relevant Departments. Their scheme was a modest success, but was criticised because it was inflexible and used an annual grant, as opposed to an allowance with the cost benefits of a capital allowance.
 I do not know what the make-up of communities is like in the right hon. Gentleman's constituency, so I will give the Committee an example from mine. Several estates, which make up the constituency council estates, are situated toward the edge of the city and have shopping precincts. Over the years, those shopping precincts have declined with the change in shopping habits that we have seen throughout Great Britain. Many of the shops had accommodation over them, which has now fallen into disuse or is used for storage only. Therefore, it will cost to bring the accommodation back into use. With the pressure for land, particularly on greenfield sites, and the desire that more people have to live in their communities, the proposal will assist and encourage those who own such properties to make the conversion and bring the properties back into residential use.

Andrew Bennett: The Paymaster General said that the Conservative scheme for giving grants was a modest success. Will she put a figure on that and tell us how many flats the Government's scheme hopes to convert? As shops are no longer viable in many cases, why is it impossible to include ground floor accommodation?

Dawn Primarolo: I do not have figures to hand on the success of the Conservative scheme. I was being generous; I understand that it was modest but successful, and I am not claiming any more for this proposal. We expect that it will help to support the conversion of around 1,300 flats a year. That is obviously a small figure in terms of housing demand, but the package is strong in helping to regenerate areas.To respond to my hon. Friend's point, we wanted the measure specifically to deal with the conversion of properties that have fallen into disrepute—I mean disuse. There are other ways in the tax system of helping conversions generally. The package in the budget responds to many of the Rogers proposals.
 Given that a limit had to be picked, we picked four storeys on the advice of the DETR. We are not aiming to help the conversion of high-rise properties, and that limit was considered reasonable, given the kind of buildings that are liable to be converted. 
 The same is true of the reasoning behind setting the cut-off point at 1980. The background advice to us on the type of conversions that might occur, and the profile of what was likely, suggested that that was a good cut-off point. 
 The balancing event time limit of seven years was chosen because, under the terms of the schedule, seven years is the duration of a lease for short-term letting. If the property is disposed of within that period, the interest in the property is surrendered, and the question of the allowances comes back into play. After seven years it does not matter. The limit was set to ensure that the accommodation stays in use for a reasonable period. 
 We are not seeking to subsidise the conversion of high-value, expensive properties that would have been converted anyway. We are trying to use the resources specifically to bring about regeneration in parts of the property market that need encouragement and push, where the financial encouragement for conversion is not as great. 
 The levels of notional rent considered to denote a flat of high value were again set on the basis of advice. The hon. Member for Croydon, South is right—this is a crude measure. We were advised by the DETR that those were sensible levels, given current market rents. The limits concern only rents, not service charges, because higher service charges tend to apply in properties of a higher value. 
 In response to the right hon. Member for Fylde, I can say that we need to keep a careful watch on this proposal. We have specific ends to which we hope it will contribute, in terms of the regeneration of rundown areas. It will not achieve that regeneration by itself, but as part of a series of measures. 
Mr. Nick St. Aubyn (Guildford) rose—

Dawn Primarolo: I shall just finish my response to the right hon. Member for Fylde. I have forgotten my point now, so I shall give way and hope that I can remember by the time I get back up.

Nick St Aubyn: I apologise for interrupting the Minister's train of thought. If I am reading the schedule correctly, it states that a one-bedroom studio, renting for £350 a week, is not high value. Is the hon. Lady saying that a studio flat in London with a value of £250,000 is not, in the Government's view, a high-value flat?

Dawn Primarolo: I repeat to the hon. Gentleman what I said to the Committee, because I would not claim to be an expert on the level of rents in the Greater London area. We are advised by those who collect the information that those are reasonable figures. That is also true of the regional figures.
 We are specifically trying to remove the yuppie element—I cannot think of any other way to put it—in regeneration and assistance areas. Yuppie development will happen anyway. We are trying to remove it from specific areas only, so we are not discriminating against yuppies, as the hon. Gentleman might think that I am implying. Development in such areas may not be economic, and may need some encouragement. 
 I was not surprised by some of the comments made by the right hon. Member for Fylde about what constitutes a ground floor and a basement. People are reasonably sensible, and understand the ground floor to be the level at which one enters the property—unless one has tunnelled one's way in, of course.

Andrew Bennett: There is a danger that the Paymaster General is putting too much emphasis on the south of England and not enough on the north of England, where an awful lot of buildings are on hillsides. There might be a ground floor shop at the front, but another ground floor at the back might be entered from the hillside.

Dawn Primarolo: My hon. Friend is right to correct me, as the way in which one enters the property is important. In Bristol, one enters the house in which I live on the ground floor, but that has become the first floor by the time one reaches the back of the house. However, capital allowances and assistance have worked perfectly well in relation to the issue. The Committee is making a meal of the proposition that people who are perfectly capable of understanding and developing regeneration cannot, when looking at a property, determine the ground floor from the first floor. The distinction is clear. I have answered the right hon. Member for Fylde on what counts as a room by referring him to the schedule, which defines that.
 We expect people to be sensible. The tax system cannot be absolute and is not designed to be. The schedule gives clear indicators about the type of development that we want. I am delighted that the Committee thought it so important to discuss the matter at some length, and I do not want to give the impression that the schedule is somehow skewed towards London. The reverse is true. Constituencies such as mine and others elsewhere in the country will benefit enormously from a little extra piece of the jigsaw in assisting regeneration packages in our local communities. I sincerely hope that the Committee will now agree to the schedule.

Nick St Aubyn: I welcome you to the Chair, Mr. O'Hara, as this is the first opportunity that I have had to address you. I apologise for the fact that my duties as a member of a Select Committee prevented me from attending earlier this afternoon.
 I was interested to hear the Paymaster General's views on the fact that a flat that costs around £300,000—that would be the case for one in Greater London with four rooms rented for £480 a week—is not of high value. At £300,000, such flats are subject to inheritance tax and high levels of stamp duty. So that we understand the Government's point of view, will she confirm that they are happy for homes that are not of high value to be subject to inheritance tax and the highest rates of stamp duty?

Dawn Primarolo: That is not relevant to the schedule. The hon. Gentleman should stay focused on our proposals, which are good. We do not make outrageous claims for them, but they will assist regeneration in our local communities. We have taken advice from the Department of the Environment, Transport and the Regions on sensible figures within the schedule, and I would have hoped that the hon. Gentleman would welcome it and not pick holes in it for the sake of it.
 I gave an incorrect answer about leases to the hon. Member for Croydon, South. I inadvertently said that a short-term lease was for seven years. The hon. Gentleman said it was five, and he was correct. The seven year period is the time before disposal can occur if the full benefit of the allowances is to be retained. I am sorry to have misled the hon. Gentleman.

Michael Jack: The Paymaster General is normally generous when responding to questions. My task in asking questions was not to nit-pick but to ask questions put by the Institute of Chartered Accountants. That responsible body represents the practitioners who will have to deal with the legislation. My remarks were inspired by the representations that we have received. I seem to recall that when the hon. Lady was sitting on the Opposition Benches, she was glad to have the assistance of such bodies to ask questions of the then Government.

Dawn Primarolo: I am delighted that the institute is always on hand to help the Committee. I was not referring to the institute; I was suggesting that the hon. Gentleman would find it an advantage to read the entire schedule before asking questions about it.

Richard Ottaway: Will the hon. Lady explain why a flat must be held for short-term letting? I have lost her reasoning. Secondly, because the hon. Lady was distracted, she inadvertently missed my question about regional variations on the values of flats. For example, a flat that might be rented for £300 in Bristol could be rented for £200 elsewhere. In Bristol, at £301, it would be disqualified; but it would not be disqualified elsewhere. It is a rather crude method. The Minister distinguishes between Greater London and elsewhere. Could not the ``elsewhere'' be regionally subdivided?

Dawn Primarolo: I think that the hon. Gentleman accepts that the rent limits have been set on advice from the Department of the Environment, Transport and the Regions. We did not want an over-complicated set of tables that gave variations across the regions, and we have been advised that the levels set will cover the sort of circumstances suggested by the hon. Gentleman. However, as I said, we would naturally keep an eye on it, and if we received representations from some parts of the country, or it if became clear to us that the advice was frustrating other issues, we would return to it. We have done our best to balance reasonably simple and straightforward provisions with the likely demand. The advice provided to us on rent levels, the availability of properties and the various areas make the table a reasonable proposition.
 I think that I understand the point made by the hon. Gentleman about encouraging property back into use. By maintaining the benefit of the allowance, the schedule seeks to ensure that the property remains in use for a reasonable period of time. Those levels are set to achieve that purpose; otherwise we would gain properties only to lose them. If I have not covered exactly the question raised by the hon. Gentleman, I shall scrutinise the record and write to him and his hon. Friends if there is a further point to be made.

Nick St Aubyn: May I help the Minister? Did she consider using the council tax bands as the basis of the ruling? After all, council tax banding and values for flats are far more certain than their prospective rents. The banding could then be related by locality to the average council tax band in that area.

Dawn Primarolo: I understand that we considered the council tax bands, but after weighing up the options, decided that the information on market rents was a more accurate marker for what was going on. I would not want to mislead the Committee, and it is some time since I first looked into the matter, so I will check that I have given the hon. Gentleman the correct information. If I have not, I will of course write to him.
 Question put and agreed to. 
 Schedule 19 agreed to. 
 Clause 68 ordered to stand part of the Bill.

Schedule 20 - Capital allowances: offshore oil infrastructure

Melanie Johnson: I beg to move amendment No. 31, in page 194, line 8, at end insert—
 `(2) In section 57(2) of the Capital Allowances Act 2001 (available qualifying expenditure in pool includes amounts allocated to pool under specified provisions), before the entry for section 165(3) insert—
``section 161C(2) (decommissioning expenditure incurred by person carrying on trade of oil extraction);''.'.
 The purpose of the amendment is to remedy a drafting error, which was brought to our attention by the Institute of Chartered Accountants in England and Wales following publication of the Finance Bill. Schedule 20 introduces, among other things, proposed new section 161C to the Capital Allowances Act 2001. Subsection (2) of that new section provides that decommissioning expenditure is to be added to the appropriate pool for capital allowances purposes. However, that is not sufficient to ensure that the expenditure attracts capital allowances. A consequential amendment should have been made to section 57(2) of that Act, to add proposed new section 161C to the list of sections under which expenditure added to the pool becomes ``available qualifying expenditure'' for the purposes of capital allowances. The amendment rectifies that omission. 
 Amendment agreed to. 
 Schedule 20, as amended, agreed to. 
 Clause 69 ordered to stand part of the Bill.

Schedule 21 - Capital allowances: minor amendments

Question proposed, That this schedule be the 21st schedule to the Bill.

Richard Ottaway: As you are aware, Mr. O'Hara, I tabled an amendment to schedule 21 yesterday. It is, of course, a starred amendment. However, as we are ahead of the clock, I hope you will allow me to mention it in the stand part debate.

Edward O'Hara: It is common sense to allow debate on subjects covered by the clause stand part debate.

Richard Ottaway: Thank you, Mr. O'Hara. I will not detain the Committee for long. This relates to the £12,000 restriction on the use of a business car. If a business buys a car costing more than £12,000, capital allowances are restricted to £3,000 per annum if the car is used wholly for business. However, the whole cost of the car will eventually be allowed to the business. The limit was raised in 1992 from £8,000, and has not been increased since then. It would result in considerable simplification of tax computations if full tax relief were available on the purchase or hiring of cars. Alternatively, as suggested in our probing amendment, the £12,000 limit could be adjusted in line with inflation. The Economic Secretary will no doubt say that it might cause difficulties for accounting. It has not been adjusted since 1992, so the previous Government must accept equal responsibility, but I look forward to hearing what the Economic Secretary has to say.

Melanie Johnson: Indeed, the £12,000 limit was set in the second Finance Act of 1992. It had been set at £8,000 since 1979. I shall not invite the Committee to support the amendment, because it would lead to unnecessary complexity and anomalies.
 Tax relief is available for the full commercial depreciation on cars. Section 74 of the Capital Allowances Act 2001 limits cars costing more the £12,000 to an annual allowance of £3,000. When the car is sold, an adjustment is made to bring the total allowances into line with the actual commercial depreciation. The effect of the limit is to delay the allowance, so the benefit is only one of timing. 
 The amendment would greatly increase the complexity of the current rules. The £12,000 limit is well known and it would be more difficult for practitioners and others to have a variety of limits changing every year. That would be the consequence of accepting the amendment. A single round sum limit is preferable. 
 Furthermore the amendment does not achieve what it was designed to do. It would lead to an anomaly because it would raise the £12,000 limit, but not the £3,000 annual allowance, in line with inflation. Beneficiaries would be limited to those who purchased a car costing between £12,000 and any increased limit. No similar amendment is proposed to the rules restricting allowances for leased cars in section 578A and 578B of the Income and Corporation Taxes Act 1988. 
 The amendment would bring no benefit to businesses with leased cars and would break the link between the capital allowances limit and restrictions for leased cars—a link that has been in place for more than 30 years. Finally, the amendment does not specify when the increase should be made or over what period of RCI the adjustment should be calculated. For all those reasons—I realise that it is a probing amendment—I urge the hon. Gentleman not to press it to the vote.

Richard Ottaway: The Minister says that it would add to the complexity of the preparation of accounts. In fact, the recommendation came from the accounting profession and was intended to simplify the accounting, so we shall have to differ on that. Otherwise, I am grateful to the Minister for responding to a starred amendment and I accept what she said. Because it is starred, I do not need to withdraw it.

Edward O'Hara: The question of withdrawal does not arise, but we must consider whether to approve schedule 21.
 Schedule 21 agreed to.

Graham Allen: I beg to move, That further consideration be now adjourned.
 With your agreement, Mr. O'Hara, and with that of the Committee and, of course, the right hon. Member for Fylde, I propose that we adjourn until Thursday at 9.30 am.

Michael Jack: I am delighted that the Government Whip has now seen fit to seek the approval of Opposition Back Benchers and I am delighted to give my views.

Edward O'Hara: In which case, the right hon. Gentleman knows which way to vote.
 Question put and agreed to. 
Adjourned accordingly at twenty-six minutes to Seven o'clock till Thursday 3 May at half-past Nine o'clock.